Friday, July 13, 2007

Regressive Taxation in France

Henry Farrell calls attention to an interesting paper by Kimberly Morgan and Monica Prasad comparing the historical evolution of the US and French tax systems. Contrary to the image d'Epinal, the US tax system is more progressive than the French and falls more heavily on capital than on labor. Morgan and Prasad attempt to explain why this is so. Worth reading.


David Bell has an eloquent piece on the politics of historical memory at TNR On-Line. He credits this blog with drawing his attention to Sarkozy's recent remarks on Algeria and agrees with my assessment of Sarkozy's motives, but he goes on to develop a subtle critique of Sarkozy's position:

Does repentance really have no place in relations between states? What about German Chancellor Willy Brandt falling to his knees at the Warsaw Ghetto Memorial in 1970? Acts such as this are actually one of the few ways that states possess to acknowledge collective responsibility for crimes without forcing innocent people to pay for the acts of their parents. Brandt's gesture was just that--a gesture--but the importance of gestures in politics can hardly be minimized. And to declare, as Sarkozy is effectively doing, that the past actions of a state impose no moral obligations on its present government, or on the citizens who take pride in belonging to it, strikes me as simply obtuse.

One can agree with this and disagree at the same time. In a reply yesterday to a comment by Mary Lewis on Sarko's treatment of Bouteflika, I noted that for Sarkozy to have made a "gesture" like Willy Brandt's in the presence of Bouteflika would have had a quite different meaning from Brandt's gesture in the presence of the ghosts of Warsaw's Jews. Bouteflika, pursuing a memorial agenda of his own, had accused France of "genocide" in Algeria for, among other things, the massacre at Sétif. The massacre at Sétif was a terrible crime, but it wasn't genocide, and any assent by Sarkozy to Bouteflika's memorial agenda would have had the effect not only of relativizing the Holocaust but also of drawing a veil over such "internal" Algerian matters as Bouteflika's treatment of the Kabyles and the massacres committed by the Front Islamique du Salut, the memory of which Bouteflika does not want to revive. Bouteflika belongs to the revolutionary generation, for which the war against the colonizers was the one big thing. Sarkozy belongs to the postwar generation. They share interests in gas and oil and economic development. They pursue quite different and incompatible agendas with respect to memory politics. Hence it behooved each to ignore the other's attitude toward the crimes of the past.

And this is the problem with memory politics. Issues are raised only as they are convenient. Historians may dwell on them, but politicians use them and move on. Of course I won't quarrel with David Bell's proper insistence on repentance as a matter for each citizen of every nation to contemplate; collective responsibility is not a trifling thing, but in the end it has to be dealt with one penitent at a time, in private, not public, communion. To the extent that gestures by national leaders can encourage such contemplation, they are useful. To the extent that they are used simply to inflame passions or divert blame, they are not.

Further to the Foregoing

Continuing the line of thought opened in the previous post, it's odd that Sarko's critics in the blogosphere, who are generally opposed to what they would describe as his "neo-liberal" tendencies (how I detest the mindless use of that term!), are so gleeful to report that he has been spanked by a cabal of allegedly neo-liberal finance ministers and central bankers.

As to the substance of the case, the severity of the Eurogroup ministers might be thought to be out of proportion to the offense. Sarko's tax package will cost an estimated $14 billion euros, or just under 0.8 percent of France's $1.8 trillion euro GDP. But any inflationary implications of the additional budget shortfall have to be interpreted in light of the total Eurozone GDP of 15 trillion euros. The French deficit increment thus amounts to less than 0.1 percent of Eurozone GDP, hardly enough to cause a central banker's eyebrow to twitch, especially now that Euroland is expected to lead the global economic upswing with a growth rate higher this year and next than that of the US. (For comparison, note that the current cost of the Iraq War is estimated at $120 billion per annum, or 1 percent of US GDP. If Sarko were to sell his fillip to aggregate demand as a war on something or other, would the financiers be as silent as they've been about the economic consequences of the so-called War on Terror?)

The Eurogroup's real beef with Sarko is that he's free-riding on the budget restraint of other Eurozone countries, chiefly Germany. But Germany is currently riding the upside of the business cycle. With the strong euro, however, German consumers are tempted to spend their gains outside Euroland, where relative prices have declined dramatically. France isn't getting as much of the benefit of German demand recovery as it might, so Sarko is helping himself. His is a calculated, not a foolish, gamble and might well pay off handsomely. The proper angle from which to criticize him, in my view, is the effect of his tax package on inequality, already growing in France and elsewhere in Europe, rather than from the point of view of the ECB or the Stability and Growth Pact.

What Really Happened in Brussels?

Jean Quatremer, writing in Libé, claims to have the real story of the Eurogroup meeting in Brussels. Although everyone put on a good face in public, he says, behind the scenes Sarko received a dressing-down from the finance ministers in such unvarnished terms that he allegedly told one of them, the German Peer Steinbrück, "I won't allow you to talk to me that way." So Sarko's brilliant success in Brussels was in fact, according to Quatremer, a mere self-serving publicity operation. Several French blogs have picked up this theme (e.g., here for references; for my earlier comment, see here).

Quatremer's revisionist reading is as one-sided as Sarkozy's representation, however. It would be more accurate to say, as diplomats are wont to do, that there was a "frank exchange of views." The Eurogroup let Sarko know that it expects him to hold to the 2010 deadline for deficit reduction. Sarko let the Eurogroup know that he is aware of their concern and hopes that his vaunted "structural reforms" (read: personnel cuts in the schools, finance ministry, and elsewhere) will go some way toward compensating for his tax cuts and that rapid economic growth will take care of the rest. But if these things don't happen, so be it. How many divisions has the Eurogroup? one can almost hear him saying.

It's absurd of Quatremer to pretend that Sarko was taken to the woodshed, just as it's absurd of Sarko to pretend that he's "saved" Europe or brought the central bankers around to his way of thinking about inflation and exchange rates. But none of the antagonists in this contest can do much to alter the behavior of the others. So the brave public face is just as apt a representation of the state of play as the private scowls.

Where to Begin?

François Hollande's position is not an enviable one. Deserted by his peers, challenged by his subordinates, and rejected by his companion of 30 years, he must nevertheless expose himself frequently to public interrogation if the PS is to retain any coherence as a party and claim even a small share of a public space skillfully and abundantly invested by l'opération Sarkozy. So, yesterday, responding to the satisfecit that the president awarded himself as he enjoyed le repos du guerrier at a Tunisian poolside, Hollande bravely mounted two counter-attacks, granting interviews to both France2 and Le Parisien. Unfortunately, the terrain was ill-chosen for the war he needs to fight. The president can develop his program in a series of ample speeches and place his men and women wherever he wishes. The party leader has but a limited opportunity to strike, and his targets are chosen for him by his interviewers, who are in turn driven by the presidential agenda. So Hollande had to spend most of his time responding to questions about Sarkozy's Epinal speech on institutional reforms and Jack Lang's departure from the PS in response to events unleashed by Sarkozy's invitation. He would have preferred to spend more time on the inequities of Sarkozy's tax package, with its reduction of the wealth and estate taxes. He did manage to get in one good shot, contrasting the 14 billion euro cost of the tax package with the mere 25 million allocated for Martin Hirsch's income support measure (the so-called RSA), but it was a mere sniper's round against the continual salvos of heavy artillery from the government.

Meanwhile, Malek Boutih, former head of SOS-Racisme and now a national secretary of the PS charged with social issues (having lost a bid for an Assembly seat), gave an interview to France Inter. Less guarded than Hollande, of whose leadership his endorsement was less than full-throated ("I'm not sure," he replied to the interviewer's question about whether Hollande was the "man for the situation"), he was candid not only about the disarray in the PS but also about what he regarded as positive aspects of Sarkozy's proposed immigration reforms. Although he would not comment directly on his "private" conversations with Sarko, he approved of Fadela Amara's joining the government, said that the emphasis on "economic immigration" was sensible, and defended tightened border controls and cooperation with states losing population to immigration as essential--this was the interesting part--to defending the interests of existing communities of immigrants in France. He also deplored the repeated invocation of the term rénovation in discussions of what the PS needs to do. This risks becoming a new langue de bois, he said, and anyway, what kind of renovation? Just a change of façade, or a complete makeover?